A bank issues 10 million of new equity to a private investor

A bank issues $10 million of new equity to a private investor. This would increase the asset side of the bank’s balance sheet as well as the value of the bank’s equity. True or False?

Solution

True.

he Bank\'s balance sheet is based on the equation:

Assets = Liabilities + shareholder\'s equity/capital

If a bank issues equity worth $10 million, its asset side of the balance sheet increase by $10 million, equal to the amount of the equity. This is a form of loan provided to the investor by the bank and hence is an asset for the bank.

On the other hand, its shareholder\'s equity also increases since it was issues newly by the bank.